201011971H
STAR SUPERSEDED INFORMATION
Accession No. - 201011971H
Supersede type - complete
Document superseded on - 08/01/2012
Issue(s) that caused the document to be superseded - Election date for Cost of Goods
Sold or Compensation Deduction
Reason(s): Subsequent policy reversal; See STAR 201206444L for current policy.
SOAH DOCKET NO. 304-10-5541.13
CPA HEARING NO. 103,807
RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: Refund Claims/Overpayment Verification **************
AUDIT PERIOD: January 1, 2009 THROUGH December 31, 2009
Franchise Tax/RFD
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
SUSAN COMBS
Texas Comptroller of Public Accounts
SARAH PAI
Representing Tax Division
**************
Representing Claimant
COMPTROLLERíS DECISION
************** (Claimant) filed a refund request for franchise tax it contends
was paid erroneously. The Texas Comptroller of Public Accounts (Comptroller)
denied the claim whereupon Claimant sought a refund hearing. In his Proposal
for Decision (PFD), the Administrative Law Judge (ALJ) recommends the refund
denial be affirmed because the amended return it is based upon was properly
rejected and Claimant failed to demonstrate that tax was paid erroneously.
I. PROCEDURAL HISTORY, NOTICE & JURISDICTION
On July 30, 2010, Comptroller Staff (Staff) referred the above-referenced
matter to the State Office of Administrative Hearings (SOAH) and issued a
Notice of Hearing by Written Submission that contained a statement of the
nature of the hearing; a statement of the legal authority and jurisdiction
under which the hearing was to be held; a reference to the particular sections
of the statutes and rules involved; and a short, plain statement of the matters
asserted, as required by the Administrative Procedure Act. See TEX. GOVíT CODE
Section 2001.052. The Comptroller has jurisdiction over this matter pursuant
to TEX. TAX CODE ch. 111, and SOAH has jurisdiction over the hearing, including
the authority to issue a PFD, pursuant to TEX. GOVíT CODE ch. 2003.
Claimant was represented by **************. Staff was represented by Assistant
General Counsel Sarah Pai. The contested case record closed on October 13,
2010.
II. CONTESTED CASE
A. Evidence Submitted
Staff submitted the pleadings the parties exchanged prior to submitting the
matter to SOAH. The contested case record also includes Claimantís 2009 Texas
Franchise Tax Report, Claimantís Amended 2009 Texas Franchise Tax Report, the
refund request, and the Comptrollerís letter rejecting the amended report and
denying the refund request. Each of the listed documents is admitted to the
contested case record.
B. Staff Agreed Adjustments
Staff did not agree that any refunds were warranted in this case.
C. Facts Established by the Evidence & Issues Presented
On September 1, 2009, Claimant, a corporation headquartered in CITY A, Georgia,
filed its 2009 Texas Franchise Tax Report. The report was due on May 15, 2009.
On October 2, 2009, Claimant filed an amended Texas Franchise Tax Report for
report year 2009 in which it recalculated its taxable margin using the
compensation deduction rather than the 70% of revenue limitation it used to
calculate tax in its original 2009 report. Claimant then sought a refund for
franchise tax it contends was paid erroneously. The Comptroller rejected the
amended report and denied the claim whereupon Claimant sought a refund hearing.
D. ALJís Analysis & Recommendation
The taxable margin of a taxable entity is determined by calculating 70% of
total revenue from the entityís total business or by subtracting, at the
election of the taxpayer, either the cost of goods sold (COGS) or compensation.
See TEX. TAX CODE Section 171.101(a)(1), 171.1011, 171.1012, and 171.1013. If
a taxable entity elects to use the COGS or compensation deduction, then it is
also entitled to subtract compensation paid to, and costs of training a
replacement for, an individual serving on active duty as a member of the armed
forces of the United States if the individual is a Texas resident at the time
he or she is ordered to active duty. See TEX. TAX CODE Section
171.101(a)(1)(B)(iii). An election to utilize the COGS or compensation
deduction is made on the taxable entityís annual franchise tax report and can
be made no later than the report due date. See TEX. TAX CODE Section
171.101(d). It is clear therefore that Claimant may not amend its report to
change the method of computing margin to a COGS deduction or to a compensation
deduction because any such amendment would allow Claimant to elect the COGS or
compensation deduction after the report due date.
A taxable entity may file an amended report for the purpose of correcting a
mathematical or other error in a report, for the purpose of supporting a claim
for refund, or to change its method of computing margin to 70% of total revenue
or, if qualified, the E-Z computation. See 34 TEX. ADMIN. CODE Section
3.584(d)(1) and 3.584(f)(1). Amending a franchise tax report in this manner is
permissible because the 70% of total revenue method of computing margin is not
described as an election; it is a baseline or default methodology. See
COMPTROLLERíS DECISION NO. 103,083 (2010).
Therefore, Claimantís amended 2009 franchise tax return was properly rejected
and the refund denial should be affirmed.
III. FINDINGS OF FACT
1. On September 1, 2009, ************** (Claimant), a corporation headquartered
in CITY A, Georgia, filed its 2009 Texas Franchise Tax Report.
2. Claimantís 2009 Texas Franchise Tax Report was due on May 15, 2009.
3. On October 2, 2009, Claimant filed an amended Texas Franchise Tax Report for
report year 2009, in which it recalculated its taxable margin using the
compensation deduction rather than the 70% of revenue limitation it used to
calculate tax in its original 2009 report.
4. Claimant sought a refund for franchise tax purportedly paid erroneously.
5. On October 16, 2009, the Comptrollerís Revenue Accounting Division issued a
letter rejecting Claimantís amended return and denying Claimantís refund claim.
6. Claimant timely requested a refund hearing contesting the denial.
7. On July 30, 2010, Comptroller Staff (Staff) referred the matter to the State
Office of Administrative Hearings.
8. Staff provided a Notice of Hearing by Written Submission to Claimant. The
notice contained a statement of the nature of the hearing; a statement of the
legal authority and jurisdiction under which the hearing was to be held; a
reference to the particular sections of the statutes and rules involved; and a
short, plain statement of the matters asserted.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter pursuant to TEX. TAX CODE
ANN ch. 111.
2. The State Office of Administrative Hearings has jurisdiction over matters
related to the hearing in this matter, including the authority to issue a
proposal for decision with findings of fact and conclusions of law pursuant to
TEX. GOVíT CODE ANN. ch. 2003.
3. The Comptroller provided proper and timely notice of the hearing pursuant to
TEX. GOVíT CODE ch. 2001 and TEX. TAX CODE ANN Section 111.009.
4. The taxable margin of a taxable entity is determined by calculating 70% of
total revenue from the entityís total business or by subtracting, at the
election of the taxpayer, either the cost of goods sold (COGS) or compensation.
See TEX. TAX CODE Section 171.101(a)(1), 171.1011, 171.1012, and 171.1013.
5. An election to utilize the COGS or compensation deduction is made on the
taxable entitiesí annual franchise tax report, and can be made no later than
the report due date. See TEX. TAX CODE Section 171.101(d).
6. Based on the foregoing Findings of Fact and Conclusions of Law, Staffís
rejection of Claimantís amended 2009 return was proper and the refund denial
should be affirmed.
Hearing No. 103,807
ORDER OF THE COMPTROLLER
On October 14, 2010, the State Office of Administrative Hearingsí (SOAH)
Administrative Law Judge, Victor John Simonds, issued a Proposal for Decision
in the above referenced matter. The parties were given fifteen days from the
date of the Decision to file exceptions with SOAH. No exceptions were filed,
and the Comptroller has determined that the Administrative Law Judgeís Proposal
for Decision, except for minor changes to correct typographical or clerical
errors, should be adopted as written.
The above Decision is approved and adopted in all respects. This Decision
becomes final twenty days after the date Claimant receives notice of this
Decision. If either party desires a rehearing, that party must file a motion
for rehearing, which must state the grounds for rehearing, no later than twenty
days after the date Claimant receives notice of this Decision. Notice of this
Decision is presumed to occur on the third day after the date of this Decision.
Signed on this 12th day of November 2010.
SUSAN COMBS
Texas Comptroller of Public Accounts
by: Martin A. Hubert
Deputy Comptroller
ACCESSION NUMBER: 201011971H
SUPERSEDED: S
DOCUMENT TYPE: H
DATE: 11/12/2010
TAX TYPE: FRANCHISE